Diageo PLC closed an asset swap deal with Casa Cuervo that would give the British liquor company ownership of the Don Julio tequila brand in exchange for its Bushmills whiskey label.
The deal includes Casa Cuervos 50% share that Diageo doesnt already own of the tequila brand plus cash payment of $408 million for the famous whiskey brand. The agreement comes two years after failed talks over the purchase of Jose Cuervo, the worlds top selling tequila brand. The deal also includes Diageo to take back distribution of its Smirnoff vodka in Mexico from Cuervo.
Deirdre Mahlan, finance director at Diageo, said the deal did not bring up talks over the failed acquisition of Jose Cuervo. “We’re not in conversation about Cuervo, and I don’t expect to commence any in the midterm” she said on Monday.
With its latest addition, Diageo follows the plan to focus on fast growing and expensive spirits rather that popular brands. Don Julio is a much smaller label compared Jose Cuervo, but it is premium and sells for £45 a bottle.
Last month, Diageo stated a decline in sales for its first business quarter of 1.5% compared to a year earlier, due to slowing growth in North America and Asia. The company explained that their high-end spirits like Johnnie Walker Blue Label and Tanqueray gin continued to enjoy strong demand, but sales in the so-called mainstream brands, including Bushmills, were under pressure.
Diageo purchased the mainstream label in 2005, but faced difficulties competing against the Jameson Irish whiskey brand, owned by Pernod Ricard. Bushmills sold 800 000 cases in the financial year ended June 30 2014 and accounted for £57 million net sales. In comparison, Don Julio sold 590 000 cases in the same period and enjoyed a 27% increase in net sales to £105 million.
“Bushmills is not a big loss. The brand has been underperforming the Irish whiskey category, where growth has been driven by Jameson” Citis analyst Andrea Pistacchi said.
Diageo PLC gained 1.58% on Friday and closed at GBX 1 825 in London. On Monday the stock fell 0.73% to trade at GBX 1 824.5 at 14:05 GMT, marking a one-year decrease of 7.83%. The company is valued at GBP 46.19 billion. According to the Financial Times, the 20 analysts offering 12-month price targets for Diageo PLC have a median target of GBX 1 975, with a high estimate of GBX 2 400 and a low estimate of GBX 1 500. The median estimate represents a 7.45% increase from the last close price of GBX 1 838.
TradingPedia.com is a financial media specialized in providing daily news and education covering Forex, equities and commodities. Our academies for traders cover 
